Property tax cap has some feeling trapped

A statewide property tax cap, designed to protect owners from being taxed out of their homes, has had an unintended side effect: It's left some residents feeling trapped in their houses.

Baby Boomers, retirees and empty nesters looking to downsize are discovering their monthly payments could actually grow larger if they moved into smaller, cheaper homes because they would get socked with huge property tax increases. As a result, many are staying put, limiting the supply of homes available for those looking to move up.

"Why should people be locked into their houses because of taxes?" asks State Rep. Carl Domino, R-Jupiter, who is proposing a bill that lets people take their tax break with them when they move. "This is a fairness issue."

Since 1995, Florida's Save Our Homes Act has limited the taxable value of a home from rising by more than 3 percent per year. Because home prices have risen by double digits in recent years, the assessed value of many homes for tax purposes is well below their market values.

The tax jolt comes when the property sells, and new buyers must pay based on the home's current market value.

For some potential sellers, the jolt comes before that.

With her children grown, Martha Smith planned to sell the three-bedroom home in eastern Fort Lauderdale she has owned since 1978 for $400,000. But she soon realized that to stay in the area, the rise in taxes she would face meant she could afford a home priced only at $250,000 -- enough for a one-bedroom condo.

"It didn't pay for me to downsize," said Smith, 53, an office manager at a Boca Raton interior design firm. "Because of the taxes, I'm better off staying where I am."

Such immobility is limiting the supply of homes for sale, further fueling demand in a region where median home prices have reached $300,000, up from the mid-$130,000s five years ago, according to the Florida Association of Realtors.

"The available inventory under $400,000 is so slim," said Fort Lauderdale area Realtor Beth Daly of Coldwell Banker. "It's almost impossible to enter our market now under $150,000."

Realtors consider larger tax bills a leading deterrent for buyers.

"It's not just about the prices," said Andrew Barbar, president of Barbar Real Estate Co. in Boca Raton. "What we're seeing is a domino effect. If this guy doesn't move, then you can't find a house. But if you could find a house, could you afford the taxes?

Mark and Marielle Carlson want a larger home for their twin 6-year-old girls, but they've stopped looking. They found they would have to spend about $600,000 to stay in northeast Fort Lauderdale and get more room. Their monthly tax bill would jump from $242.87 to $1,170.

"It's disheartening to think we're not ever going to be able to move to a bigger house, and it's not because of the mortgage, but the taxes," said Mark Carlson, 46, a global business director for an electronics company.

The Carlsons live in a two-bedroom house they bought in 1996 for just under $150,000. Mark Carlson works out of the converted garage. They paid $2,900 in taxes in 2004. They would pay $14,000 on a $600,000 house. Instead of moving, the Carlsons may add a second story.

The tax cap is doing what it intended: Preventing people with low or fixed incomes from being taxed out of their homes by exploding real estate values.

Domino wants to take it further by allowing owners to transfer the tax advantage to another homesteaded property of equal or greater assessed value. Here's how it would work: Let's say an owner sold a house for $300,000 that had a $100,000 assessed value. The difference between the two is $200,000. If the owner bought a $500,000 home, Domino's proposal would subtract $200,000 from that amount and the owner would pay taxes on $300,000, not the full sales price.

He introduced the measure last year but it never made it to the House floor. He contends it has a better chance this year because he has more backing from the real estate industry and is now in a leadership position in the House.

His bill needs approval of 60 percent of the House and Senate and then must pass a referendum by Florida voters. The session begins March 8.

Critics argue the plan could mean a loss of revenue for counties, cities and schools that depend on extra revenue when property sells and is reassessed at close to the sales price. But Domino contends the proposal would be revenue neutral.

"What made Save Our Homes somewhat palatable to local governments was that property would sell and go back on the tax rolls at full value," said state Sen. Steve Geller, D-Hallandale Beach. "What this would do is raise taxes for people buying homes for the first time."

Geller has filed a more limited bill that would only affect owners whose homes were taken by the government under eminent domain. They could take their tax break with them when they replaced their homes.

According to the Florida Department of Revenue, $117 billion in property tax value statewide was taken off the tax rolls in 2003 by Save Our Homes. In Broward, that figure was $17.6 billion; in Palm Beach County, $12.6 billion; and in Miami-Dade $18.7 billion.

Nationally, Florida ranks in the middle of the pack among states in property taxes levied, according to a survey by the Tax Foundation. It also is among 19 states with property tax limits.

"I have clients who want to move but they aren't moving because of the tax situation," said north Palm Beach County broker Sheri Reback. "If their taxes are locked in now because they are homesteaded, they don't want to go to a non-homesteaded property and have their taxes triple and quadruple."

The fear of sky-high taxes has many owners choosing to remodel their current homes instead of moving to a new place, Realtors say.

"A lot of people are cocooning and improving their current homes unless they have to move," said Coral Springs area Broker Hap Pomerantz. "The taxes alone take such a bite that it's stifling the market."

Robin Benedick can be reached at rbenedick@sun-sentinel.com or 954-385-7914.

THE PROPOSAL
State Rep. Carl Domino, R-Jupiter, is proposing a bill that lets people take their tax break with them when they move. Here's how it would work:

>An owner sold a house for $300,000 that had a $100,000 assessed value.

>The difference between the two is $200,000.

>If the owner bought a $500,000 home, Domino's proposal would subtract $200,000 from that amount and the owner would pay taxes on $300,000, not the full sales price.

His bill needs approval of 60 percent of the House and Senate and then must pass a referendum by Florida voters. The session begins March 8.